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Establishment and Liquidation of Companies with Foreign Participation

Rights and obligations of foreign investors in the Russian Federation are regulated by the Federal Law as of 09.07.1999 No. 160-FZ “On Foreign Investments in the Russian Federation” (hereinafter the Federal Law No. 160-FZ).

The Russian Federation, like all developed country, conducts the policy of regulating foreign capital up to limiting its access to strategic branches of the public economic sector, primarily, of course, to the military industry, as well as to other important state industries. This policy resulted in the Federal Law as of 29.04.2008 No. 57-FZ “On Procedures for Foreign Investments in the Business Entities of Strategic Importance for Russian National Defense and State Security” (hereinafter the Federal Law No. 57-FZ).


Establishment of a legal entity, as well as the subsequent acceptance of participants through civil transactions, is a widespread form of business activity by foreign individuals and entities in the Russian Federation.


In the Russian Federation, investments can be carried out by means of:

  • establishment of enterprises with participation of foreign capital (joint ventures);
  • establishment of enterprises fully owned by foreign investors, their branches and representative offices;
  • acquisition by a foreign investor of enterprises, property, buildings, shares, stocks, bonds and other securities;
  • acquisition of rights to use land and other natural resources, as well as other property rights;
  • loans, credits, property and property rights, etc.


Foreign capital can have access to all sectors of the economy (except for those that are within the state monopoly) without prejudice to the national interests. Industrial restrictions should apply only to direct foreign investments. Their flow is usually limited in the industries related to the direct exploitation of national natural resources (such as extractive industries, logging, and fishing) in production infrastructure (power grid, roads), telecommunications and satellite communications.


The Federal Law No. 160-FZ is applied to all relations associated with the state guarantees of the foreign investors’ rights to make investments on the territory of the Russian Federation, except for relations associated with the investments of foreign capital in credit, insurance and non-profit organizations.


The legal definition of "foreign investment" is set forth in the Article 2 of the Federal Law No. 160-FZ. Foreign investment is an investment of foreign capital into business activity on the territory of the Russian Federation in the form of objects of civil rights owned by foreign investors, if such objects of civil rights are not withdrawn from circulation or limited in circulation, in accordance with federal laws. This may include money, securities, other property or property rights, monetizable exclusive rights to intellectual property, as well as services and information.


The direct foreign investment means:

  • acquisition by a foreign investor of not less than 10% share, shares (deposits) in the authorized (share) capital of the commercial organization established or newly created on the territory of the Russian Federation in the form of a partnership or company;
  • investment in fixed assets of the branch of a foreign legal entity, created on the territory of the Russian Federation;
  • participation of a foreign investor as a lessor of some equipment for financial lease (leasing) in the Russian Federation.


In addition to the Federal Law, certain provisions relating to the determination of the special status of a foreign investor are contained in other regulations. The activity of a foreign investor is also regulated by international treaties concluded between the Russian Federation and foreign states.


One of the most significant direct restrictions is the statutory restriction of size of the authorized capital (share capital), which may be held by a foreign investor. The rule that allows the establishment of any restrictions only at the level of the Federal Law is important to guarantee the rights of foreign investors on the entire territory of the Russian Federation, as well as to ensure the stability of civil circulation.


The Federal Law No. 57-FZ determines statutory restrictions to foreign investors and a group of persons including a foreign investor for their participation in the authorized capital of business entities of strategic importance for national defense and state security, and (or) for transactions resulting in control over these business entities.


The Article 6 of the Federal Law No. 57-FZ lists the activities of strategic importance for national defense and state security. The list of 42 kinds of strategic sectors of activity includes the production and distribution of the machinery; nuclear, aerospace and aviation industry; development, manufacture and sale of weapons; geological studies, and etc. At the same time the law covers broadcasting, printing companies’ activities and publishing of print media of at least 1 million copies.


In these cases, foreign companies shall obtain a permit from the federal government controlling the particular industry prior to the transaction.